Outsourcing Logistics in Brazil

Today's newspaper Valor Econômico brought the magazine Valor Setorial – Logística as an insert. The theme, very opportune in the current moment of search for cost reduction, was approached in a series of reports, among them, the one that dealt with the outsourcing of logistics activities in the country. For anyone in the business, it's worth reading.

Some data used in the report talk about the use of third parties versus the logistics carried out by the company itself. Brazil, clearly, is a country that uses a lot of logistics service providers, especially in the transport activity.

Figure 1 – Average % of outsourcing by companies' logistics activity

Source: ILOS

The current moment, however, is one of reviewing usual practices, in the search for survival. This puts in the spotlight a series of decisions taken in the past, when the scenario was different. But the decision to outsource has a great chance of being an option that will continue in companies. This is because, in times of uncertainty, flexibility is a great ally. Working with third parties increases flexibility and makes operations less rigid, as it does not require contracting companies to have their own assets, making them lighter and more prepared for changes in demand that may arise.

Figure 2 – Improvements obtained after outsourcing (% of companies)

Source: ILOS

Furthermore, as the total demand for cargo handling in Brazil is at a low level (since the economy is not going well and production has dropped), there is a high supply of logistics service providers available, which increases the options for companies that are hiring. The risk, however, is that the company does not select its logistics partners well, choosing them only for the cheapest price, or forcing them too much to lower prices. In periods of downturn, the risk of bankruptcy for companies increases, and the choice of service providers that have good financial strength should always be considered.